Bill English brandished a raft of quotes from Helen Clark’s time in opposition, after she denounced National’s plans to boost infrastructure investment with “a prudent programme” of debt management. In 1994 (when the public debt was above 50% of GDP) she criticised the Bolger Govt for “putting an undue emphasis on debt repayment at the expense of our failing services and infrastructure.” English recalled, too, how the freshly elected Clark Govt lifted the target debt-to-GDP ratio from 25% to 30%; the Nats aim to lift it “by a modest 2%” to 22% of GDP.
So Far, So Good. But English went on to say: “She knows, and Michael Cullen knows, NZ does not have a debt problem, it has a growth problem.” Boosting infrastructure is aimed at helping remove some economic bottlenecks to improve longer-term growth prospects. But whoa: NZ has no debt problem? At 31 March, the country’s net debt was $153.2bn ($132.6bn in international assets and $285.9bn in international liabilities), up $10.2bn from 31 March 2007. English was carelessly referring to public debt. Successive Govts for the past 20 years or so have shared a determination to run down what has been a massive public debt, an exercise in fiscal prudence resulting in controversial state asset sales and (under the Bolger Govt) tight curbs on social spending. Capital spending suffered, too. In September 1996, celebrating the day when Govt net foreign currency debt was eliminated, Bolger told Hamilton business people “breathe in the spring air. Doesn’t it smell great today?” The net public debt was wiped out under the Clark Govt. The Crown now has more assets than liabilities.
Why Not Borrow? Even if it didn’t, there would be no reason why it shouldn’t borrow more. The critical question is whether it will borrow and invest wisely. Taxpayers should always be sceptical – the last time a Govt borrowed significantly to invest in infrastructure was in Muldoon days, and we were lumbered with the Think Big energy projects. John Key is unlikely to be plotting to build more synthetic oil plants and so on. Roads, more likely. But there’s a danger of over-investing in roads, too (we should ask if we are appropriately using and paying for the roads we have). The real test will be to scrutinise how the extra debt is applied – the worry should always be politicians raise it for the wrong reasons.

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